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ADAMS RESOURCES & ENERGY, INC.
0000002178
12/31
Accelerated Filer
4,217,971
2019
Q1
10-Q
FALSE
March 31, 2019
FALSE
TRUE
121
153
1.00
1.00
960,000
960,000
—
—
0.10
0.10
7,500,000
7,500,000
4,217,971
4,217,596
0.22
0.22
0.22
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM
10-Q
(Mark one)
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2019
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___ to ___.
Commission file number: 1-07908
ADAMS RESOURCES & ENERGY, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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74-1753147
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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17 South Briar Hollow Lane, Suite 100
Houston, Texas 77027
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(Address of Principal Executive Offices, including Zip Code)
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(713) 881-3600
(Registrant’s Telephone Number, including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
þ
No
o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes
þ
No
¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
o
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Accelerated filer
þ
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Non-accelerated filer
o
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Smaller reporting company
þ
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Emerging growth company
o
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
o
No
þ
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Common Stock
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AE
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NYSE American LLC
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A total of
4,217,971
shares of Common Stock were outstanding at May 1, 2019.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
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March 31,
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December 31,
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2019
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2018
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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130,893
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$
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117,066
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Accounts receivable, net of allowance for doubtful
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accounts of $121 and $153, respectively
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88,095
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85,197
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Accounts receivable – related party
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—
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425
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Inventory
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29,237
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22,779
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Derivative assets
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274
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162
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Income tax receivable
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1,978
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2,404
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Prepayments and other current assets
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1,609
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1,557
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Total current assets
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252,086
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229,590
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Property and equipment, net
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48,917
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44,623
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Operating lease right-of-use assets
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10,681
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—
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Cash deposits and other assets
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2,951
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4,657
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Total assets
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$
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314,635
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$
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278,870
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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Current liabilities:
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Accounts payable
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$
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133,325
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$
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116,068
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Accounts payable – related party
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6
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29
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Derivative liabilities
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270
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139
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Current portion of finance lease obligations
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1,002
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883
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Current portion of operating lease liabilities
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2,160
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—
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Other current liabilities
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8,580
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6,148
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|
Total current liabilities
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145,343
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123,267
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Other long-term liabilities:
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Asset retirement obligations
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1,538
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1,525
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Finance lease obligations
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3,428
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3,209
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Operating lease liabilities
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8,523
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—
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Deferred taxes and other liabilities
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5,104
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4,271
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Total liabilities
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163,936
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132,272
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Commitments and contingencies (Note 13)
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Shareholders’ equity:
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Preferred stock – $1.00 par value, 960,000 shares
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authorized, none outstanding
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—
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—
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Common stock – $0.10 par value, 7,500,000 shares
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authorized, 4,217,971 and 4,217,596 shares outstanding, respectively
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422
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422
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Contributed capital
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12,071
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11,948
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Retained earnings
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138,206
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134,228
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Total shareholders’ equity
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150,699
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146,598
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Total liabilities and shareholders’ equity
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$
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314,635
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$
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278,870
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See Notes to Unaudited Condensed Consolidated Financial Statements.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
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Three Months Ended
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March 31,
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2019
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2018
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Revenues:
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Marketing
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$
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429,761
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$
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373,638
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Transportation
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15,407
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13,618
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|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
445,168
|
|
387,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
Marketing
|
420,541
|
|
369,183
|
|
|
|
|
|
Transportation
|
13,101
|
|
12,301
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
2,684
|
|
2,283
|
|
|
|
|
|
Depreciation and amortization
|
3,589
|
|
2,412
|
|
|
|
|
|
Total costs and expenses
|
439,915
|
|
386,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating earnings
|
5,253
|
|
1,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
Gain on dissolution of investment
|
498
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
656
|
|
387
|
|
|
|
|
|
Interest expense
|
(
65
)
|
|
(
19
)
|
|
|
|
|
|
Total other income (expense), net
|
1,089
|
|
368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income taxes
|
6,342
|
|
1,445
|
|
|
|
|
|
Income tax provision
|
(
1,434
)
|
|
(
307
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings
|
$
|
4,908
|
|
$
|
1,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic net earnings per common share
|
$
|
1.16
|
|
$
|
0.27
|
|
|
|
|
|
Diluted net earnings per common share
|
$
|
1.16
|
|
$
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share
|
$
|
0.22
|
|
$
|
0.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Operating activities:
|
|
|
|
|
Net earnings
|
$
|
4,908
|
|
$
|
1,138
|
|
Adjustments to reconcile net earnings to net cash
|
|
|
|
|
provided by operating activities:
|
|
|
|
|
Depreciation and amortization
|
3,589
|
|
2,412
|
|
Gains on sales of property
|
(
178
)
|
|
(
26
)
|
|
|
|
|
|
|
Provision for doubtful accounts
|
(
32
)
|
|
—
|
|
Stock-based compensation expense
|
123
|
|
—
|
|
Deferred income taxes
|
834
|
|
(
709
)
|
|
Net change in fair value contracts
|
19
|
|
(
2
)
|
|
|
|
|
|
|
|
|
|
|
|
Gain on dissolution of investment in AREC
|
(
498
)
|
|
—
|
|
Changes in assets and liabilities:
|
|
|
|
|
Accounts receivable
|
(
2,866
)
|
|
4,200
|
|
Accounts receivable/payable, affiliates
|
(
23
)
|
|
—
|
|
Inventories
|
(
6,458
)
|
|
(
7,075
)
|
|
Income tax receivable
|
426
|
|
880
|
|
Prepayments and other current assets
|
(
52
)
|
|
153
|
|
Accounts payable
|
17,914
|
|
1,377
|
|
Accrued liabilities
|
2,432
|
|
851
|
|
Other
|
878
|
|
86
|
|
Net cash provided by operating activities
|
21,016
|
|
3,285
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
Property and equipment additions
|
(
8,351
)
|
|
(
866
)
|
|
|
|
|
|
|
Proceeds from property sales
|
543
|
|
132
|
|
Proceeds from dissolution of AREC
|
923
|
|
—
|
|
Insurance and state collateral (deposits) refunds
|
842
|
|
603
|
|
Net cash used in investing activities
|
(
6,043
)
|
|
(
131
)
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
Principal repayments of finance lease obligations
|
(
218
)
|
|
(
83
)
|
|
Dividends paid on common stock
|
(
928
)
|
|
(
928
)
|
|
Net cash used in financing activities
|
(
1,146
)
|
|
(
1,011
)
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
13,827
|
|
2,143
|
|
Cash and cash equivalents at beginning of period
|
117,066
|
|
109,393
|
|
Cash and cash equivalents at end of period
|
$
|
130,893
|
|
$
|
111,536
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common
|
|
Contributed
|
|
Retained
|
|
Shareholders’
|
|
|
|
Stock
|
|
Capital
|
|
Earnings
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2019
|
|
$
|
422
|
|
$
|
11,948
|
|
$
|
134,228
|
|
$
|
146,598
|
|
Net earnings
|
|
—
|
|
—
|
|
4,908
|
|
4,908
|
|
Stock-based compensation expense
|
|
—
|
|
123
|
|
—
|
|
123
|
|
Dividends declared:
|
|
|
|
|
|
|
|
|
|
Common stock, $0.22/share
|
|
—
|
|
—
|
|
(
928
)
|
|
(
928
)
|
|
Awards under LTIP, $0.22/share
|
|
—
|
|
—
|
|
(
2
)
|
|
(
2
)
|
|
Balance, March 31, 2019
|
|
$
|
422
|
|
$
|
12,071
|
|
$
|
138,206
|
|
$
|
150,699
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common
|
|
Contributed
|
|
Retained
|
|
Shareholders’
|
|
|
|
Stock
|
|
Capital
|
|
Earnings
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2018
|
|
$
|
422
|
|
$
|
11,693
|
|
$
|
135,004
|
|
$
|
147,119
|
|
Net earnings
|
|
—
|
|
—
|
|
1,138
|
|
1,138
|
|
Dividends declared:
|
|
|
|
|
|
|
|
|
|
Common stock, $0.22/share
|
|
—
|
|
—
|
|
(
928
)
|
|
(
928
)
|
|
Balance, March 31, 2018
|
|
$
|
422
|
|
$
|
11,693
|
|
$
|
135,214
|
|
$
|
147,329
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1.
Organization and Basis of Presentation
Organization
Adams Resources & Energy, Inc. (“AE”) is a publicly traded Delaware corporation organized in 1973, the common shares of which are listed on the NYSE American LLC under the ticker symbol “AE”. We, through our subsidiaries, are primarily engaged in the business of crude oil marketing, transportation and storage in various crude oil and natural gas basins in the lower
48
states of the United States (“U.S.”). We also conduct tank truck transportation of liquid chemicals and dry bulk primarily in the lower 48 states of the U.S. with deliveries into Canada and Mexico, and with terminals in the Gulf Coast region of the U.S. Unless the context requires otherwise, references to “we,” “us,” “our,” the “Company” or “AE” are intended to mean the business and operations of Adams Resources & Energy, Inc. and its consolidated subsidiaries.
We operate and report in
two
business segments: (i) crude oil marketing, transportation and storage, and (ii) tank truck transportation of liquid chemicals and dry bulk.
Basis of Presentation
Our results of operations for the three months ended March 31, 2019 are not necessarily indicative of results expected for the full year of 2019. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring accruals necessary for fair presentation. The condensed consolidated financial statements and the accompanying notes are prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial statements and the rules of the U.S. Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures required by GAAP for complete annual financial statements have been omitted and, therefore, these interim financial statements should be read in conjunction with our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”) filed with the SEC on March 8, 2019. All significant intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of our financial statements in conformity with GAAP requires management to use estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates and judgments on historical experience and on various other assumptions and information we believe to be reasonable under the circumstances. Estimates and assumptions about future events and their effects cannot be perceived with certainty and, accordingly, these estimates may change as new events occur, as more experience is acquired, as additional information is obtained and as the operating environment changes. While we believe the estimates and assumptions used in the preparation of these condensed consolidated financial statements are appropriate, actual results could differ from those estimates.
Note 2.
Summary of Significant Accounting Policies
Earnings Per Share
Basic earnings (losses) per share is computed by dividing our net earnings (losses) by the weighted average number of shares of common stock outstanding during the period. Diluted earnings (losses) per share is computed by giving effect to all potential shares of common stock outstanding, including our stock related to unvested restricted stock unit awards. Unvested restricted stock unit awards granted under the Adams Resources & Energy, Inc. 2018 Long-Term Incentive Plan (“2018 LTIP”) are not considered to be participating securities as the holders of these shares do not have non-forfeitable dividend rights in the event of our declaration of a dividend for common shares (see Note 10 for further discussion).
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
A reconciliation of the calculation of basic and diluted earnings per share is as follows (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Earnings per share — numerator:
|
|
|
|
|
|
|
|
|
Net earnings
|
$
|
4,908
|
|
$
|
1,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Basic weighted average number of shares outstanding
|
4,218
|
|
4,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
$
|
1.16
|
|
$
|
0.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share:
|
|
|
|
|
|
|
|
|
Diluted weighted average number of shares outstanding:
|
|
|
|
|
|
|
|
|
Common shares
|
4,218
|
|
4,218
|
|
|
|
|
|
Restricted stock unit awards
|
6
|
|
—
|
|
|
|
|
|
Performance share unit awards
(
1
)
|
—
|
|
—
|
|
|
|
|
|
Total
|
4,224
|
|
4,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
$
|
1.16
|
|
$
|
0.27
|
|
|
|
|
_______________
(1) The performance conditions for the performance share unit awards were achieved as of December 31, 2018. For the three months ended March 31, 2019, the effect of the performance share awards on earning per share is anti-dilutive.
Fair Value Measurements
The carrying amounts reported in the unaudited condensed consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the immediate or short-term maturity of these financial instruments. Marketable securities are recorded at fair value based on market quotations from actively traded liquid markets.
A three-tier hierarchy has been established that classifies fair value amounts recognized in the financial statements based on the observability of inputs used to estimate these fair values. The hierarchy considers fair value amounts based on observable inputs (Levels 1 and 2) to be more reliable and predictable than those based primarily on unobservable inputs (Level 3). At each balance sheet reporting date, we categorize our financial assets and liabilities using this hierarchy.
Fair value contracts consist of derivative financial instruments and are recorded as either an asset or liability measured at its fair value. Changes in fair value are recognized immediately in earnings unless the derivatives qualify for, and we elect, cash flow hedge accounting. We had no contracts designated for hedge accounting during any current reporting periods (see Note 9 for further information).
Income Taxes
Income taxes are accounted for using the asset and liability method. Under this approach, deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of these items and their respective tax basis.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Letter of Credit Facility
We maintain a Credit and Security Agreement with Wells Fargo Bank, National Association to provide for the issuance of up to $
60.0
million in stand-by letters of credit primarily used to support crude oil purchases within our crude oil marketing segment and for other purposes. We are currently using the letter of credit facility for letters of credit related to our insurance program. This facility is collateralized by the eligible accounts receivable within our crude oil marketing segment and expires on August 30, 2019.
The issued stand-by letters of credit are canceled as the underlying purchase obligations are satisfied by cash payment when due. The letter of credit facility places certain restrictions on GulfMark Energy, Inc., one of our wholly owned subsidiaries. These restrictions include the maintenance of positive net earnings excluding inventory valuation changes, as defined, among other restrictions. We are currently in compliance with all such financial covenants. However, per the terms of our letter of credit agreement, we were in default of certain nonfinancial covenants at March 31, 2019, and we obtained a waiver whereby the creditor will not exercise any of their rights or remedies. At March 31, 2019 and December 31, 2018, we had $
4.6
million and $
4.6
million, respectively, of letters of credit outstanding under this facility.
Property and Equipment
Property and equipment is recorded at cost. Expenditures for additions, improvements and other enhancements to property and equipment are capitalized, and minor replacements, maintenance and repairs that do not extend asset life or add value are charged to expense as incurred. When property and equipment assets are retired or otherwise disposed of, the related cost and accumulated depreciation is removed from the accounts and any resulting gain or loss is included in results of operations in operating costs and expenses for the respective period. Property and equipment, except for land, is depreciated using the straight-line method over the estimated average useful lives ranging from two to thirty-nine years.
We review our long-lived assets for impairment whenever there is evidence that the carrying value of these assets may not be recoverable. Any impairment recognized is permanent and may not be restored. Property and equipment is reviewed at the lowest level of identifiable cash flows. For properties requiring impairment, the fair value is estimated based on an internal discounted cash flow model of future cash flows.
See Note 5 for additional information regarding our property and equipment.
Stock-Based Compensation
We measure all share-based payments, including the issuance of restricted stock units and performance share units to employees and board members, using a fair-value based method. The cost of services received from employees and non-employee board members in exchange for awards of equity instruments is recognized in the consolidated statement of operations based on the estimated fair value of those awards on the grant date and amortized on a straight-line basis over the requisite service period. The fair value of restricted stock unit awards and performance share unit awards is based on the closing price of our common stock on the grant date. We account for forfeitures as they occur.
See Note 10 for additional information regarding our 2018 LTIP.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 3.
Revenue Recognition
Revenue Disaggregation
The following table disaggregates our revenue by segment and by major source for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reporting Segments
|
|
|
|
|
|
|
Marketing
|
|
Transportation
|
|
Total
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
Revenues from contracts with customers
|
$
|
360,731
|
|
$
|
15,407
|
|
$
|
376,138
|
|
Other
(1)
|
69,030
|
|
—
|
|
69,030
|
|
Total revenues
|
$
|
429,761
|
|
$
|
15,407
|
|
$
|
445,168
|
|
|
|
|
|
|
|
|
Timing of revenue recognition:
|
|
|
|
|
|
|
Goods transferred at a point in time
|
$
|
360,731
|
|
$
|
—
|
|
$
|
360,731
|
|
Services transferred over time
|
—
|
|
15,407
|
|
15,407
|
|
Total revenues from contracts with customers
|
$
|
360,731
|
|
$
|
15,407
|
|
$
|
376,138
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
Revenues from contracts with customers
|
$
|
360,085
|
|
$
|
13,618
|
|
$
|
373,703
|
|
Other
(1)
|
13,553
|
|
—
|
|
13,553
|
|
Total revenues
|
$
|
373,638
|
|
$
|
13,618
|
|
$
|
387,256
|
|
|
|
|
|
|
|
|
Timing of revenue recognition:
|
|
|
|
|
|
|
Goods transferred at a point in time
|
$
|
360,085
|
|
$
|
—
|
|
$
|
360,085
|
|
Services transferred over time
|
—
|
|
13,618
|
|
13,618
|
|
Total revenues from contracts with customers
|
$
|
360,085
|
|
$
|
13,618
|
|
$
|
373,703
|
_______________
(1) Other marketing revenues are recognized under ASC 815,
Derivatives and Hedging
, and ASC 845,
Nonmonetary Transactions – Purchases and Sales of Inventory with the Same Counterparty
.
Other Marketing Revenue
Certain of the commodity purchase and sale contracts utilized by our crude oil marketing business qualify as derivative instruments with certain specifically identified contracts also designated as trading activity. From the time of contract origination, these contracts are marked-to-market and recorded on a net revenue basis in the accompanying consolidated financial statements.
Certain of our crude oil contracts may be with a single counterparty to provide for similar quantities of crude oil to be bought and sold at different locations. These contracts are entered into for a variety of reasons, including effecting the transportation of the commodity, to minimize credit exposure, and/or to meet the competitive demands of the customer. These buy/sell arrangements are reflected on a net revenue basis in the accompanying consolidated financial statements.
Reporting these crude oil contracts on a gross revenue basis would increase our reported revenues as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue gross-up
|
$
|
242,123
|
|
$
|
45,691
|
|
|
|
|
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4.
Prepayments and Other Current Assets
The components of prepayments and other current assets were as follows at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Insurance premiums
|
$
|
598
|
|
$
|
677
|
|
Rents, licenses and other
|
1,011
|
|
880
|
|
Total
|
$
|
1,609
|
|
$
|
1,557
|
Note 5.
Property and Equipment
The historical costs of our property and equipment and related accumulated depreciation balances were as follows at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Useful Life
|
|
March 31,
|
|
December 31,
|
|
|
in Years
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
Tractors and trailers
(1)
|
5 – 6
|
|
$
|
101,470
|
|
$
|
96,523
|
|
Field equipment
|
2 – 20
|
|
21,378
|
|
20,725
|
|
Buildings
|
5 – 39
|
|
15,821
|
|
15,746
|
|
Office equipment
|
2 – 5
|
|
1,886
|
|
1,863
|
|
Land
|
|
|
1,790
|
|
1,790
|
|
Construction in progress
|
|
|
1,918
|
|
2,794
|
|
Total
|
|
|
144,263
|
|
139,441
|
|
Less accumulated depreciation
|
|
|
(
95,346
)
|
|
(
94,818
)
|
|
Property and equipment, net
|
|
|
$
|
48,917
|
|
$
|
44,623
|
_______________
(1) Amounts include assets held under finance leases for certain tractors in our marketing segment. Gross property and equipment associated with assets held under finance leases were $
5.3
million and $
4.7
million at March 31, 2019 and December 31, 2018, respectively. Accumulated amortization associated with assets held under finance leases were $
0.9
million and $
0.7
million at March 31, 2019 and December 31, 2018, respectively (see Note 12 for further information).
Components of depreciation and amortization expense were as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Depreciation and amortization, excluding amounts
|
|
|
|
|
|
|
|
|
under finance leases
|
$
|
3,344
|
|
$
|
2,322
|
|
|
|
|
|
Amortization of property and equipment under finance leases
|
245
|
|
90
|
|
|
|
|
|
Total depreciation and amortization
|
$
|
3,589
|
|
$
|
2,412
|
|
|
|
|
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6.
Cash Deposits and Other Assets
Components of cash deposits and other assets were as follows at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Amounts associated with liability insurance program:
|
|
|
|
|
Insurance collateral deposits
|
$
|
1,027
|
|
$
|
1,453
|
|
Excess loss fund
|
794
|
|
1,916
|
|
Accumulated interest income
|
520
|
|
788
|
|
Other amounts:
|
|
|
|
|
State collateral deposits
|
54
|
|
57
|
|
Materials and supplies
|
556
|
|
443
|
|
|
|
|
|
|
Total
|
$
|
2,951
|
|
$
|
4,657
|
We have established certain deposits to support participation in our liability insurance program and remittance of state crude oil severance taxes and other state collateral deposits. Insurance collateral deposits are held by the insurance company to cover past or potential open claims based upon a percentage of the maximum assessment under our insurance policies. Insurance collateral deposits are invested at the discretion of our insurance carrier. Excess amounts in our loss fund represent premium payments in excess of claims incurred to date that we may be entitled to recover through settlement or commutation as claim periods are closed. Interest income is earned on the majority of amounts held by the insurance companies and will be paid to us upon settlement of policy years.
Note 7.
Segment Reporting
We operate and report in
two
business segments: (i) crude oil marketing, transportation and storage, and (ii) tank truck transportation of liquid chemicals and dry bulk.
Information concerning our various business activities was as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reporting Segments
|
|
|
|
|
|
|
|
|
Marketing
|
|
Transportation
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
429,761
|
|
$
|
15,407
|
|
$
|
—
|
|
$
|
445,168
|
|
Segment operating earnings
(1)
|
7,098
|
|
839
|
|
—
|
|
7,937
|
|
Depreciation and amortization
|
2,122
|
|
1,467
|
|
—
|
|
3,589
|
|
Property and equipment additions
|
1,654
|
|
6,697
|
|
—
|
|
8,351
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
373,638
|
|
$
|
13,618
|
|
$
|
—
|
|
$
|
387,256
|
|
Segment operating earnings
(1)
|
2,958
|
|
402
|
|
—
|
|
3,360
|
|
Depreciation and amortization
|
1,497
|
|
915
|
|
—
|
|
2,412
|
|
Property and equipment additions
|
793
|
|
73
|
|
—
|
|
866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_______________
(1) Our marketing segment’s operating earnings included inventory liquidation gains of $
4.5
million and $
0.6
million for the three months ended March 31, 2019 and 2018, respectively.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Segment operating earnings reflect revenues net of operating costs and depreciation and amortization expense and are reconciled to earnings before income taxes, as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating earnings
|
$
|
7,937
|
|
$
|
3,360
|
|
|
|
|
|
General and administrative
|
(
2,684
)
|
|
(
2,283
)
|
|
|
|
|
|
Operating earnings
|
5,253
|
|
1,077
|
|
|
|
|
|
Gain on dissolution of investment
|
498
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
656
|
|
387
|
|
|
|
|
|
Interest expense
|
(
65
)
|
|
(
19
)
|
|
|
|
|
|
Earnings before income taxes
|
$
|
6,342
|
|
$
|
1,445
|
|
|
|
|
Identifiable assets by business segment were as follows at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Reporting segment:
|
|
|
|
|
Marketing
|
$
|
135,755
|
|
$
|
119,370
|
|
Transportation
|
40,796
|
|
34,112
|
|
|
|
|
|
|
Cash and other
|
138,084
|
|
125,388
|
|
Total assets
|
$
|
314,635
|
|
$
|
278,870
|
There were no intersegment sales during the three months ended March 31, 2019 and 2018, respectively. Other identifiable assets are primarily corporate cash, corporate accounts receivable and properties not identified with any specific segment of our business. Accounting policies for transactions between reportable segments are consistent with applicable accounting policies as disclosed herein.
Note 8.
Transactions with Affiliates
We enter into certain transactions in the normal course of business with affiliated entities including direct cost reimbursement for shared phone and administrative services. In addition, we lease our corporate office space from an affiliated entity.
Activities with affiliates were as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Affiliate billings to us
|
$
|
17
|
|
$
|
15
|
|
|
|
|
|
Billings to affiliates
|
1
|
|
2
|
|
|
|
|
|
Rentals paid to affiliate
|
122
|
|
122
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 9.
Derivative Instruments and Fair Value Measurements
Derivative Instruments
In the normal course of our operations, our crude oil marketing segment purchases and sells crude oil. We seek to profit by procuring the commodity as it is produced and then delivering the material to the end users or the intermediate use marketplace. As typical for the industry, these transactions are made pursuant to the terms of forward month commodity purchase and/or sale contracts. Some of these contracts meet the definition of a derivative instrument, and therefore, we account for these contracts at fair value, unless the normal purchase and sale exception is applicable. These types of underlying contracts are standard for the industry and are the governing document for our crude oil marketing segment. None of our derivative instruments have been designated as hedging instruments.
At March 31, 2019, we had in place
12
commodity purchase and sale contracts, of which
ten
of these contracts had no fair value associated with them as the contractual prices of crude oil were within the range of prices specified in the agreements. These commodity purchase and sale contracts encompassed approximately:
•
322
barrels per day of crude oil during April 2019;
•
258
barrels per day of crude oil during May 2019;
•
322
barrels per day of crude oil during June 2019 through August 2019;
•
516
barrels per day of crude oil during September 2019 through December 2019; and
•
258
barrels per day of crude oil during January 2020 through February 2020.
The estimated fair value of forward month commodity contracts (derivatives) reflected in the accompanying unaudited condensed consolidated balance sheet were as follows at the date indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
Balance Sheet Location and Amount
|
|
|
|
|
|
|
|
|
Current
|
|
Other
|
|
Current
|
|
Other
|
|
|
Assets
|
|
Assets
|
|
Liabilities
|
|
Liabilities
|
|
Asset derivatives:
|
|
|
|
|
|
|
|
|
Fair value forward hydrocarbon commodity
|
|
|
|
|
|
|
|
|
contracts at gross valuation
|
$
|
274
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Liability derivatives:
|
|
|
|
|
|
|
|
|
Fair value forward hydrocarbon commodity
|
|
|
|
|
|
|
|
|
contracts at gross valuation
|
—
|
|
—
|
|
270
|
|
—
|
|
Less counterparty offsets
|
—
|
|
—
|
|
—
|
|
—
|
|
As reported fair value contracts
|
$
|
274
|
|
$
|
—
|
|
$
|
270
|
|
$
|
—
|
At December 31, 2018, we had in place
ten
commodity purchase and sale contracts with fair value associated with them as the contractual prices of crude oil were outside of the range of prices specified in the agreements. These commodity purchase and sale contracts encompassed approximately:
•
322
barrels per day of crude oil during January 2019 through April 2019;
•
258
barrels per day of crude oil during May 2019;
•
322
barrels per day of crude oil during June 2019 through August 2019; and
•
258
barrels per day of crude oil during September 2019 through December 2019.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The estimated fair value of forward month commodity contracts (derivatives) reflected in the accompanying unaudited condensed consolidated balance sheet were as follows at the date indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Balance Sheet Location and Amount
|
|
|
|
|
|
|
|
|
Current
|
|
Other
|
|
Current
|
|
Other
|
|
|
Assets
|
|
Assets
|
|
Liabilities
|
|
Liabilities
|
|
Asset derivatives:
|
|
|
|
|
|
|
|
|
Fair value forward hydrocarbon commodity
|
|
|
|
|
|
|
|
|
contracts at gross valuation
|
$
|
162
|
|
$
|
—
|
|
$
|
—
|
|
$
|
—
|
|
Liability derivatives:
|
|
|
|
|
|
|
|
|
Fair value forward hydrocarbon commodity
|
|
|
|
|
|
|
|
|
contracts at gross valuation
|
—
|
|
—
|
|
139
|
|
—
|
|
Less counterparty offsets
|
—
|
|
—
|
|
—
|
|
—
|
|
As reported fair value contracts
|
$
|
162
|
|
$
|
—
|
|
$
|
139
|
|
$
|
—
|
We only enter into commodity contracts with creditworthy counterparties and evaluate our exposure to significant counterparties on an ongoing basis. At March 31, 2019 and December 31, 2018, we were not holding nor have we posted any collateral to support our forward month fair value derivative activity. We are not subject to any credit-risk related trigger events. We have no other financial investment arrangements that would serve to offset our derivative contracts.
Forward month commodity contracts (derivatives) reflected in the accompanying unaudited condensed consolidated statements of operations were as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains (losses)
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues – marketing
|
$
|
(
20
)
|
|
$
|
1
|
|
|
|
|
Fair Value Measurements
The following tables set forth, by level with the Level 1, 2 and 3 fair value hierarchy, the carrying values of our financial assets and liabilities at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
Significant
|
|
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
|
and Liabilities
|
|
Inputs
|
|
Inputs
|
|
Counterparty
|
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Offsets
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
$
|
—
|
|
$
|
274
|
|
$
|
—
|
|
$
|
—
|
|
$
|
274
|
|
Current liabilities
|
—
|
|
(
270
)
|
|
—
|
|
—
|
|
(
270
)
|
|
Net value
|
$
|
—
|
|
$
|
4
|
|
$
|
—
|
|
$
|
—
|
|
$
|
4
|
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
in Active
|
|
Significant
|
|
|
|
|
|
|
|
|
Markets for
|
|
Other
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
Observable
|
|
Unobservable
|
|
|
|
|
|
|
and Liabilities
|
|
Inputs
|
|
Inputs
|
|
Counterparty
|
|
|
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Offsets
|
|
Total
|
|
Derivatives:
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
$
|
—
|
|
$
|
162
|
|
$
|
—
|
|
$
|
—
|
|
$
|
162
|
|
Current liabilities
|
—
|
|
(
139
)
|
|
—
|
|
—
|
|
(
139
)
|
|
Net value
|
$
|
—
|
|
$
|
23
|
|
$
|
—
|
|
$
|
—
|
|
$
|
23
|
These assets and liabilities are measured on a recurring basis and are classified based on the lowest level of input used to estimate their fair value. Our assessment of the relative significance of these inputs requires judgments.
When determining fair value measurements, we make credit valuation adjustments to reflect both our own nonperformance risk and our counterparty’s nonperformance risk. When adjusting the fair value of derivative contracts for the effect of nonperformance risk, we consider the impact of netting and any applicable credit enhancements. Credit valuation adjustments utilize Level 3 inputs, such as credit scores to evaluate the likelihood of default by us or our counterparties. At March 31, 2019 and December 31, 2018, credit valuation adjustments were not significant to the overall valuation of our fair value contracts. As a result, applicable fair value assets and liabilities are included in their entirety in the fair value hierarchy.
Note 10.
Share-Based Compensation Plan
In May 2018, our shareholders approved the 2018 LTIP, a long-term incentive plan under which any employee or non-employee director who provides services to us is eligible to participate in the plan. The 2018 LTIP, which is overseen by the Compensation Committee of our Board of Directors, provides for the grant of various types of equity awards, of which restricted stock unit awards and performance-based compensation awards were granted during the second quarter of 2018. The maximum number of shares authorized for issuance under the 2018 LTIP is
150,000
shares, and the 2018 LTIP is effective until May 8, 2028. After giving effect to awards granted under the 2018 LTIP and assuming the potential achievement of the maximum amounts of the performance factors through March 31, 2019, a total of
132,486
shares were available for issuance. During the three months ended March 31, 2019, we recognized $
0.1
million of compensation expense in connection with equity-based awards. We had no compensation expense in connection with equity-based awards during the three months ended March 31, 2018 as we began awarding share-based compensation to eligible employees and directors in June 2018.
At March 31, 2019 and December 31, 2018, we had $
11,600
and $
10,000
, respectively, of accrued dividend amounts for awards granted under the 2018 LTIP.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock Unit Awards
The following table presents restricted stock unit award activity for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
Average Grant
|
|
|
Number of
|
|
Date Fair Value
|
|
|
Shares
|
|
per Share
(1)
|
|
|
|
|
|
|
Restricted stock unit awards at January 1, 2019
|
13,733
|
|
$
|
43.00
|
|
Granted
|
—
|
|
$
|
—
|
|
Vested
|
(
375
)
|
|
$
|
43.00
|
|
Forfeited
|
—
|
|
$
|
—
|
|
Restricted stock unit awards at March 31, 2019
|
13,358
|
|
|
_______________
(1) Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.
Unrecognized compensation cost associated with restricted stock unit awards was approximately $
0.3
million at March 31, 2019. Due to the graded vesting provisions of these awards, we expect to recognize the remaining compensation cost for these awards over a weighted-average period of
1.5
years.
Performance Share Unit Awards
The following table presents performance share unit award activity for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Average Grant
|
|
|
|
Number of
|
|
Date Fair Value
|
|
|
|
Shares
|
|
per Share
(1)
|
|
|
|
|
|
|
|
Performance share unit awards at January 1, 2019
|
|
3,966
|
|
$
|
43.00
|
|
Granted
|
|
—
|
|
$
|
—
|
|
Performance factor decrease
(2)
|
|
(
185
)
|
|
$
|
43.00
|
|
Vested
|
|
—
|
|
$
|
—
|
|
Forfeited
|
|
—
|
|
$
|
—
|
|
Performance share unit awards at March 31, 2019
|
|
3,781
|
|
|
_______________
(1) Determined by dividing the aggregate grant date fair value of awards by the number of awards issued.
(2) The performance factor was lowered to
47.5
percent based upon a comparison of actual results for 2018 to performance goals.
Unrecognized compensation cost associated with performance share unit awards was approximately $
0.1
million at March 31, 2019. We expect to recognize the remaining compensation cost for these awards over a weighted-average period of
2.2
years.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 11.
Supplemental Cash Flow Information
Supplemental cash flows and non-cash transactions were as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Cash paid for interest
|
$
|
65
|
|
$
|
19
|
|
Cash paid for federal and state income taxes
|
5
|
|
52
|
|
|
|
|
|
|
Non-cash transactions:
|
|
|
|
|
Change in accounts payable related to property and equipment additions
|
(
683
)
|
|
(
39
)
|
|
Property and equipment acquired under finance leases
|
556
|
|
—
|
See Note 12 for information related to non-cash transactions related to the adoption of the new lease accounting standard.
Note 12.
Leases
Adoption of ASC 842
In February 2016, the Financial Accounting Standards Board issued Accounting Standards Codification 842,
Leases
(“ASC 842”), which requires lessees to recognize a right-of-use (“ROU”) asset and a corresponding lease liability for leases with terms longer than twelve months. We adopted the new standard effective January 1, 2019, using a modified retrospective transition method and applied certain optional transitional practical expedients.
We elected an optional transition method that allowed application of the new standard at the adoption date and the recognition of a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption with no adjustment to previously reported results. In accordance with this approach, our consolidated financial statements for periods prior to January 1, 2019 were not revised to reflect the new lease accounting guidance. We also elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the carry forward of historical lease classification. We did not elect the practical expedient related to hindsight.
ASC 842 changes the way our operating leases are recorded, presented and disclosed in our consolidated financial statements. Upon adoption of ASC 842 on January 1, 2019, we recognized a ROU asset and a corresponding lease liability based on the present value of then existing operating lease obligations of approximately $
11.4
million on our consolidated balance sheet. In addition, there are several key accounting policy elections that we made upon adoption of ASC 842 including:
•
We
did not recognize ROU assets and lease liabilities for short-term leases and instead record them in a manner similar to operating leases under ASC 840,
Leases
, lease accounting guidelines. A short term lease is one with a maximum lease term of 12 months or less and does not include a purchase option or renewal option the lessee is reasonably certain to exercise.
•
We
have also elected the non-lease component practical expedient for any asset class where lease and non-lease components are comingled and the non-lease component is determined to be insignificant when compared to the lease component.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Lease Recognition
We determine if an arrangement is a lease at inception. Operating leases are included in operating lease ROU assets, other current liabilities and operating lease liabilities in the condensed consolidated balance sheets. Finance leases are included in property and equipment, other current liabilities and other long-term liabilities in the condensed consolidated balance sheets.
ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate when readily determinable. At adoption, the ROU asset also includes any lease payment made and excludes lease incentives and initial direct costs. Our lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term.
Our lease agreements do not contain any leases with variable lease payments (i.e., payments that depend on a percentage of sales of a lessee or payments that increase based upon an index such as CPI), residual value guarantees probable of being paid or material restrictive covenants. Lease agreements with lease and non-lease components are generally accounted for separately when practical. For leases where the lease and non-lease component are comingled and the non-lease component is determined to be insignificant when compared to the lease component, the lease and the non-lease components are treated as a single lease component for all asset classes.
We are a lessee in noncancellable (1) operating leases for office space, equipment and lease and terminal access contracts for tank storage and dock access for our crude oil marketing business, and (2) finance leases for tractors. Leases with an initial term of twelve months or less are not included on the balance sheet.
Some leases include one or more options to renew, with renewal terms that can extend the lease term for generally one year with exercise of lease renewal options being at our sole discretion as lessee.
The following table provides the components of lease expense for the period indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
Finance lease cost:
|
|
|
|
Amortization of ROU assets
|
|
$
|
245
|
|
Interest on lease liabilities
|
|
45
|
|
Operating lease cost
|
|
862
|
|
Short-term lease cost
|
|
1,965
|
|
|
|
|
|
|
|
|
|
Total lease expense
|
|
$
|
3,117
|
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table provides supplemental cash flow and other information related to leases for the period indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
Cash paid for amounts included in measurement of lease liabilities:
|
|
|
|
Operating cash flows from operating leases
(1)
|
|
$
|
861
|
|
|
|
|
|
Financing cash flows from finance leases
|
|
218
|
|
|
|
|
|
ROU assets obtained in exchange for new lease liabilities:
|
|
|
|
Finance leases
|
|
556
|
|
Operating leases
|
|
11,410
|
______________
(1) Amount is included in Other operating activities on the unaudited condensed consolidated cash flow statement.
The following table provides the lease term and discount rate for the period indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
|
|
|
|
Ended
|
|
|
|
March 31,
|
|
|
|
2019
|
|
Weighted-average remaining lease term (years):
|
|
|
|
Finance leases
|
|
4.21
|
|
Operating leases
|
|
5.41
|
|
|
|
|
|
Weighted-average discount rate:
|
|
|
|
Finance leases
|
|
4.7
%
|
|
|
Operating leases
|
|
5.0
%
|
|
The following table provides supplemental balance sheet information related to leases at the date indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
2019
|
|
Assets
|
|
|
|
Finance lease assets
(1)
|
|
$
|
4,354
|
|
Operating lease ROU assets
|
|
10,681
|
|
|
|
|
|
Liabilities
|
|
|
|
Current
|
|
|
|
Finance lease liabilities
|
|
1,002
|
|
Operating lease liabilities
|
|
2,160
|
|
Noncurrent
|
|
|
|
Finance lease liabilities
|
|
3,428
|
|
Operating lease liabilities
|
|
8,523
|
______________
(1) Amount is included in Property and equipment, net on the unaudited condensed consolidated balance sheet.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table provides maturities of undiscounted lease liabilities at March 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
|
|
Operating
|
|
|
|
Lease
|
|
Lease
|
|
|
|
|
|
|
|
Remainder of 2019
|
|
$
|
892
|
|
$
|
1,993
|
|
2020
|
|
1,177
|
|
2,498
|
|
2021
|
|
1,177
|
|
2,102
|
|
2022
|
|
1,034
|
|
1,770
|
|
2023
|
|
577
|
|
1,668
|
|
Thereafter
|
|
22
|
|
2,111
|
|
Total lease payments
|
|
4,879
|
|
12,142
|
|
Less: Interest
|
|
(
449
)
|
|
(
1,459
)
|
|
Present value of lease liabilities
|
|
4,430
|
|
10,683
|
|
Less: Current portion of lease obligation
|
|
(
1,002
)
|
|
(
2,160
)
|
|
Total long-term lease obligation
|
|
$
|
3,428
|
|
$
|
8,523
|
The following table provides maturities of undiscounted lease liabilities at December 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance
|
|
Operating
|
|
|
|
Lease
|
|
Lease
|
|
|
|
|
|
|
|
2019
|
|
$
|
1,052
|
|
$
|
4,242
|
|
2020
|
|
1,052
|
|
2,258
|
|
2021
|
|
1,052
|
|
2,107
|
|
2022
|
|
909
|
|
1,782
|
|
2023
|
|
451
|
|
1,495
|
|
Thereafter
|
|
—
|
|
1,488
|
|
Total lease payments
|
|
4,516
|
|
$
|
13,372
|
|
Less: Interest
|
|
(
424
)
|
|
|
|
Present value of lease liabilities
|
|
4,092
|
|
|
|
Less: Current portion of lease obligation
|
|
(
883
)
|
|
|
|
Total long-term lease obligation
|
|
$
|
3,209
|
|
|
Note 13.
Commitments and Contingencies
Insurance Policies
We establish a liability under our automobile and workers’ compensation insurance policies for expected claims incurred but not reported on a monthly basis. As claims are paid, the liability is relieved. Our accruals for automobile and workers’ compensation claims are presented in the table below.
For periods prior to October 1, 2017, we pre-funded our estimated claims, and therefore, we could either receive a return of premium paid or be assessed for additional premiums up to pre-established limits. Additionally, in certain instances, the risk of insured losses was shared with a group of similarly situated entities through an insurance captive. We have appropriately recognized estimated expenses and liabilities related to these policies for losses incurred but not reported to us or our insurance carrier. The amount of pre-funded insurance premiums left to cover potential future losses are presented in the table below. If the potential insurance claims do not further develop, the pre-funded premiums will be returned to us as a premium refund.
ADAMS RESOURCES & ENERGY, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The amount of pre-funded insurance premiums left to cover potential future losses related to periods prior to October 1, 2017, and our accruals for automobile and workers’ compensation claims were as follows at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Pre-funded premiums for losses incurred but not reported
|
$
|
314
|
|
$
|
427
|
|
Accrued automobile and workers’ compensation claims
|
2,816
|
|
2,246
|
We maintain a self-insurance program for managing employee medical claims. A liability for expected claims incurred but not reported is established on a monthly basis. As claims are paid, the liability is relieved. We also maintain third party insurance stop-loss coverage for individual medical claims exceeding a certain minimum threshold. In addition, we maintain $
1.0
million of umbrella insurance coverage for annual aggregate medical claims exceeding approximately $
9.6
million.
Medical accrual amounts were as follows at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Accrued medical claims
|
$
|
1,491
|
|
$
|
1,181
|
Litigation
From time to time as incidental to our operations, we may become involved in various lawsuits and/or disputes. Primarily as an operator of an extensive trucking fleet, we are a party to motor vehicle accidents, worker compensation claims and other items of general liability as would be typical for the industry. We are presently unaware of any claims against us that are either outside the scope of insurance coverage or that may exceed the level of insurance coverage and could potentially represent a material adverse effect on our financial position or results of operations.
Note 14.
Subsequent Event
On May 6, 2019, we completed the purchase of the assets of a Houston, Texas based bulk carrier trucking company for approximately $
6.2
million. This acquisition will add approximately
40
tractors and
53
trailers to our existing transportation fleet, and will be included in our transportation segment.
Item 2
.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with our Unaudited Condensed Consolidated Financial Statements and accompanying Notes included in this quarterly report on Form 10-Q and the Audited Consolidated Financial Statements and related Notes, together with our discussion and analysis of financial position and results of operations, included in our annual report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”), as filed on March 8, 2019 with the U.S. Securities and Exchange Commission (“SEC”). Our financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”).
Cautionary Statement Regarding Forward-Looking Information
This quarterly report on Form 10-Q contains various forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and information that are based on our beliefs, as well as assumptions made by us and information currently available to us. When used in this document, words such as “anticipate,” “project,” “expect,” “plan,” “seek,” “goal,” “estimate,” “forecast,” “intend,” “could,” “should,” “would,” “will,” “believe,” “may,” “potential” and similar expressions and statements regarding our plans and objectives for future operations are intended to identify forward-looking statements. Although we believe that our expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that such expectations will prove to be correct. Forward-looking statements are subject to a variety of risks, uncertainties and assumptions as described in more detail under Part I, Item 1A of our 2018 Form 10-K and within Part II, Item 1A of this quarterly report. If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may vary materially from those anticipated, estimated, projected or expected. You should not put undue reliance on any forward-looking statements. The forward-looking statements in this quarterly report speak only as of the date hereof. Except as required by federal and state securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or any other reason.
Overview of Business
Adams Resources & Energy, Inc. (“AE”), a Delaware corporation organized in 1973, and its subsidiaries are primarily engaged in the business of crude oil marketing, transportation and storage in various crude oil and natural gas basins in the lower 48 states of the United States (“U.S.”). We also conduct tank truck transportation of liquid chemicals and dry bulk primarily in the lower 48 states of the U.S. with deliveries into Canada and Mexico, and with terminals in the Gulf Coast region of the U.S. Unless the context requires otherwise, references to “we,” “us,” “our,” the “Company” or “AE” are intended to mean the business and operations of Adams Resources & Energy, Inc. and its consolidated subsidiaries.
We operate and report in two business segments: (i) crude oil marketing, transportation and storage, and (ii) tank truck transportation of liquid chemicals and dry bulk.
Recent Developments
On May 6, 2019, we completed the purchase of the assets of a Houston, Texas based bulk carrier trucking company for approximately $6.2 million. This acquisition will add approximately 40 tractors and 53 trailers to our existing transportation fleet, and will be included in our transportation segment.
Results of Operations
Marketing
Our crude oil marketing segment revenues, operating earnings and selected costs were as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Change
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
429,761
|
|
$
|
373,638
|
|
15%
|
|
|
|
|
|
|
|
|
Operating earnings
|
7,098
|
|
2,958
|
|
140%
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
2,122
|
|
1,497
|
|
42%
|
|
|
|
|
|
|
|
|
Driver compensation
|
6,033
|
|
3,055
|
|
97%
|
|
|
|
|
|
|
|
|
Insurance
|
1,991
|
|
1,289
|
|
54%
|
|
|
|
|
|
|
|
|
Fuel
|
2,449
|
|
1,515
|
|
62%
|
|
|
|
|
|
|
|
_______________
(1) Represents the percentage increase (decrease) from the prior year period.
Volume and price information were as follows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
Field level purchase volumes – per day
(1)
|
|
|
|
|
|
|
|
|
Crude oil – barrels
|
113,279
|
|
65,194
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average purchase price
|
|
|
|
|
|
|
|
|
Crude oil – per barrel
|
$
|
54.26
|
|
$
|
64.01
|
|
|
|
|
_______________
(1) Reflects the volume purchased from third parties at the field level of operations.
Revenues and Operating Earnings
. Crude oil marketing revenues increased by $56.1 million during the three months ended March 31, 2019 as compared to the three months ended March 31, 2018, primarily as a result of higher overall crude oil volumes, which increased revenues by approximately $182.4 million, partially offset by a decrease in the market price of crude oil, which decreased revenues by approximately $126.3 million. The average crude oil price received was $64.01 for the three months ended March 31, 2018, which decreased to $54.26 for the three months ended March 31, 2019. Volumes increased approximately 40,000 barrels per day as a result of the Red River acquisition on October 1, 2018. The purchase price for Red River volumes is based on a contractual price for volumes in North Texas and Oklahoma, which has been slightly lower than legacy volumes, which are based upon the market price in our other market areas, primarily in the Gulf Coast.
Our crude oil marketing operating earnings for the three months ended March 31, 2019 increased by $4.1 million as compared to the same period in 2018, due to increased crude oil volumes. Operating earnings were also impacted by inventory valuation changes (as shown in the following table).
Expenses
. Driver compensation increased by $3.0 million during the three months ended March 31, 2019 as compared to the same period in 2018, primarily as a result of an increase in the number of drivers in the 2019 period as compared to the 2018 period due to the Red River acquisition on October 1, 2018. In connection with the Red River acquisition, we hired over one hundred additional drivers.
Insurance costs increased by $0.7 million during the three months ended March 31, 2019 as compared to the same period in 2018, primarily as a result of higher insurance premiums in the 2019 period as a result of a higher driver count in the current period. Fuel costs increased by $0.9 million during the three months ended March 31, 2019 as compared to the same period in 2018, consistent with a higher driver count in the current period, primarily as a result of the additional drivers hired for the Red River assets.
Depreciation and amortization expense increased by $0.6 million during the three months ended March 31, 2019 as compared to the same period in 2018, primarily as a result of the acquisition of the Red River assets, consisting of approximately 113 tractors and 126 trailers, on October 1, 2018, which increased depreciation expense by approximately $0.9 million per quarter. In addition, we purchased approximately eight new tractors during the first quarter of 2019.
Field Level Operating Earnings (Non-GAAP Financial Measure)
.
Inventory valuations and forward commodity contract (derivatives or mark-to-market) valuations are two significant factors affecting comparative crude oil marketing segment operating earnings. As a purchaser and shipper of crude oil, we hold inventory in storage tanks and third-party pipelines. During periods of increasing crude oil prices, we recognize inventory liquidation gains while during periods of falling prices, we recognize inventory liquidation and valuation losses.
Crude oil marketing operating earnings can be affected by the valuations of our forward month commodity contracts (derivative instruments). These non-cash valuations are calculated and recorded at each period end based on the underlying data existing as of such date. We generally enter into these derivative contracts as part of a pricing strategy based on crude oil purchases at the wellhead (field level). The valuation of derivative instruments at period end requires the recognition of non-cash “mark-to-market” gains and losses.
The impact of inventory liquidations and derivative valuations on our crude oil marketing segment operating earnings is summarized in the following reconciliation of our non-GAAP financial measure for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As reported segment operating earnings
(1)
|
$
|
7,098
|
|
$
|
2,958
|
|
|
|
|
|
Add (subtract):
|
|
|
|
|
|
|
|
|
Inventory liquidation gains
|
(4,462)
|
|
(552)
|
|
|
|
|
|
Inventory valuation losses
|
—
|
|
—
|
|
|
|
|
|
Derivative valuation losses
|
20
|
|
(1)
|
|
|
|
|
|
Field level operating earnings
(2)
|
$
|
2,656
|
|
$
|
2,405
|
|
|
|
|
_______________
(1) Segment operating earnings included inventory liquidation gains of $4.5 million and $0.6 million for the three months ended March 31, 2019 and 2018, respectively.
(2) The use of field level operating earnings is unique to us, not a substitute for a GAAP measure and may not be comparable to any similar measures developed by industry participants. We utilize this data to evaluate the profitability of our operations.
Field level operating earnings and field level purchase volumes depict our day-to-day operation of acquiring crude oil at the wellhead, transporting the product and delivering the product to market sales point. Field level operating earnings increased during the three months ended March 31, 2019 as compared to the same period in 2018 due to increased crude oil volumes, which increased revenues.
We held crude oil inventory at a weighted average composite price as follows at the dates indicated (in barrels):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2019
|
|
|
|
December 31, 2018
|
|
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
Barrels
|
|
Price
|
|
Barrels
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
Crude oil inventory
|
452,874
|
|
$
|
64.56
|
|
415,523
|
|
$
|
54.82
|
Historically, prices received for crude oil have been volatile and unpredictable with price volatility expected to continue. See “Part I, Item 1A.
Risk Factors
” in our 2018 Form 10-K.
Transportation
Our transportation segment revenues, operating earnings (losses) and selected costs were as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
Change
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
15,407
|
|
$
|
13,618
|
|
13%
|
|
|
|
|
|
|
|
|
Operating earnings (losses)
|
$
|
839
|
|
$
|
402
|
|
(109%)
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
$
|
1,467
|
|
$
|
915
|
|
60%
|
|
|
|
|
|
|
|
|
Driver commissions
|
$
|
2,829
|
|
$
|
2,880
|
|
(2%)
|
|
|
|
|
|
|
|
|
Insurance
|
$
|
1,681
|
|
$
|
1,402
|
|
20%
|
|
|
|
|
|
|
|
|
Fuel
|
$
|
1,720
|
|
$
|
1,876
|
|
(8%)
|
|
|
|
|
|
|
|
|
Maintenance expense
|
$
|
1,019
|
|
$
|
1,527
|
|
(33%)
|
|
|
|
|
|
|
|
|
Mileage (000s)
|
5,075
|
|
5,070
|
|
—%
|
|
|
|
|
|
|
|
_______________
(1) Represents the percentage increase (decrease) from the prior year period.
Our revenue rate structure includes a component for fuel costs in which fuel cost fluctuations are largely passed through to the customer over time. Revenues, net of fuel cost, were as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total transportation revenue
|
$
|
15,407
|
|
$
|
13,618
|
|
|
|
|
|
Diesel fuel cost
|
(1,720)
|
|
(1,876)
|
|
|
|
|
|
Revenues, net of fuel cost
(1)
|
$
|
13,687
|
|
$
|
11,742
|
|
|
|
|
_______________
(1) Revenues, net of fuel cost, is a non-GAAP financial measure and is utilized for internal analysis of the results of our transportation segment.
Transportation revenues increased by $1.8 million during the three months ended March 31, 2019 as compared to the three months ended March 31, 2018, primarily as a result of higher transportation rates in full effect in the 2019 period as a result of negotiations during 2018 with customers and more miles traveled in the current period. Revenues, net of fuel cost, increased by $1.9 million during the three months ended March 31, 2019, primarily as a result of higher revenues in the 2019 period and more miles traveled during the 2019 period. Although the overall market has softened from 2018 levels, transportation activity has continued to increase for our transportation segment as we continue to pursue our strategy of streamlining operations and diversifying offerings in our transportation segment. We continue to work with customers to maintain our increased transportation rates as well as streamline operations in low margin areas. This increase in services has resulted in an increase in revenues and an increase in variable expenses related to transportation activities.
Fuel costs decreased by $0.2 million as a result of a decrease in the price of diesel during the 2019 period as compared to the 2018 period, partially offset by an increase in miles traveled. Depreciation and amortization expense increased by $0.6 million during the three months ended March 31, 2019 as compared to the same period in 2018, primarily as a result of the purchase of new tractors in 2018.
General and Administrative Expense
General and administrative expense increased by $0.4 million during the three months ended March 31, 2019 as compared to the same period in 2018 primarily due higher outside service fees, legal and audit fees and an increase in expenses related to the amortization of equity awards (see Note 10 in the Notes to Unaudited Condensed Consolidated Financial Statements), partially offset by lower expense for salaries and wages.
Gain on Dissolution of Investment
During the first quarter of 2019, we received a cash payment from Adams Resources Exploration Corporation (“AREC”) totaling approximately $0.9 million, related to the final settlement of its bankruptcy and dissolution. AREC had been one of our wholly owned subsidiaries through April 2017, until its bankruptcy filing. Of the amount received, approximately $0.4 million was offset against a receivable that had been set up as of December 31, 2018 and $0.5 million was recorded as a gain in our unaudited condensed consolidated financial statements.
Income Taxes
Provision for (benefit from) income taxes is based upon federal and state tax rates, and variations in amounts are consistent with taxable income (loss) in the respective accounting periods.
Outlook
We plan to operate our remaining business segments with internally generated cash flows during 2019, but intend to remain flexible as the focus will be on increasing efficiencies and on business development opportunities. During the remainder of 2019, we plan to leverage our investment in our transportation segment’s Houston terminal with the continued efforts to diversify service offerings, and we plan to grow in new or existing areas with our crude oil marketing segment.
Liquidity and Capital Resources
Liquidity
Our liquidity is from our cash balance and net cash provided by operating activities and is therefore dependent on the success of future operations. If our cash inflow subsides or turns negative, we will evaluate our investment plan accordingly and remain flexible.
At March 31, 2019 and December 31, 2018, we had no bank debt or other forms of debenture obligations. We maintain cash balances in order to meet the timing of day-to-day cash needs. Cash and working capital, the excess of current assets over current liabilities, were as follows at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
130,893
|
|
$
|
117,066
|
|
Working capital
|
106,743
|
|
106,323
|
We maintain a letter of credit facility with Wells Fargo Bank, National Association, to provide for the issuance of up to $60.0 million in stand-by letters of credit primarily used to support crude oil purchases within our crude oil marketing segment and for other purposes. Stand-by letters of credit are issued as needed and are canceled as the underlying purchase obligations are satisfied by cash payment when due. The issuance of stand-by letters of credit enables us to avoid posting cash collateral when procuring crude oil supply. We are currently using the letter of credit facility for letters of credit related to our insurance program. At March 31, 2019 and December 31, 2018, we had $4.6 million and $4.6 million, respectively, of letters of credit outstanding under this facility.
We believe current cash balances, together with expected cash generated from future operations, and the ease of financing truck and trailer additions through leasing arrangements (should the need arise) will be sufficient to meet our short-term and long-term liquidity needs. We expect to fund the purchase price of the transportation trucking company acquisition (see Note 14 in the Notes to Unaudited Condensed Consolidated Financial Statements) from our current cash balances.
We utilize cash from operations to make discretionary investments in our crude oil marketing and transportation businesses. With the exception of operating and finance lease commitments primarily associated with storage tank terminal arrangements, leased office space and tractors, our future commitments and planned investments can be readily curtailed if operating cash flows decrease. See “Other Items” below for information regarding our operating and finance lease obligations.
The most significant item affecting future increases or decreases in liquidity is earnings from operations, and these earnings are dependent on the success of future operations. See “Part I, Item 1A.
Risk Factors
” in our 2018 Form 10-K.
Cash Flows from Operating, Investing and Financing Activities
Our consolidated cash flows from operating, investing and financing activities were as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Cash provided by (used in):
|
|
|
|
|
Operating activities
|
$
|
21,016
|
|
$
|
3,285
|
|
Investing activities
|
(6,043)
|
|
(131)
|
|
Financing activities
|
(1,146)
|
|
(1,011)
|
Operating activities
. Net cash flows provided by operating activities for the three months ended March 31, 2019 increased by $17.7 million when compared to the same period in 2018. This increase was primarily due to an increase in revenues and operating expenses and the timing of collections of accounts receivable and payments of accounts payable.
At various times each month, we may make cash prepayments and/or early payments in advance of the normal due date to certain suppliers of crude oil within our crude oil marketing operations. Crude oil supply prepayments are recouped and advanced from month to month as the suppliers deliver product to us. In addition, in order to secure crude oil supply, we may also “early pay” our suppliers in advance of the normal payment due date of the twentieth of the month following the month of production. These “early payments” reduce cash and accounts payable as of the balance sheet date. We also require certain customers to make similar early payments or to post cash collateral with us in order to support their purchases from us. Early payments and cash collateral received from customers increases cash and reduces accounts receivable as of the balance sheet date.
Early payments were as follows at the dates indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Early payments received
|
$
|
50,062
|
|
$
|
38,539
|
|
|
|
|
|
We rely heavily on our ability to obtain open-line trade credit from our suppliers especially with respect to our crude oil marketing operations. During the first quarter of 2019, we received several early payments from certain of our customers in our crude oil marketing operations. Our cash balance increased by approximately $13.8 million as of March 31, 2019 relative to the year ended December 31, 2018 primarily as a result of the timing of the receipt of these early payments received during each period.
Investing activities
. Net cash flows used in investing activities for the three months ended March 31, 2019 increased by $5.9 million when compared to the same period in 2018. This increase was primarily due to an increase of $7.5 million in capital spending for property and equipment (see following table), partially offset by an increase of $0.4 million in cash proceeds from the sales of assets, an increase of $0.2 million in insurance and state collateral refunds and the receipt of $0.9 million in cash proceeds related to the final settlement of AREC’s bankruptcy.
Capital spending was as follows for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
|
March 31,
|
|
|
|
|
2019
|
|
2018
|
|
Crude oil marketing
(1)
|
$
|
1,654
|
|
$
|
793
|
|
Transportation
(
2
)
|
6,697
|
|
73
|
|
|
|
|
|
|
Capital spending
|
$
|
8,351
|
|
$
|
866
|
_______________
(1) 2019 amount primarily relates to the purchase of eight tractors and other field equipment. 2018 amount primarily relates to construction of a pipeline connection.
(2) 2019 amount relates to the purchase of 40 tractors and other field equipment.
Financing activities
. Cash used in financing activities for the three months ended March 31, 2019 increased by $0.1 million when compared to the same period in 2018. The increase was primarily due to an increase of $0.1 million in principal repayments made for finance lease obligations for certain of our tractors in our crude oil marketing segment. During each of the three months ended March 31, 2019 and 2018, we paid a quarterly cash dividend of $0.22 per common share, or a total of $0.9 million during each three month period. See “Other Items” below for further information regarding our finance leases.
Other Items
Contractual Obligations
The following table summarizes our significant contractual obligations at March 31, 2019 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments due by period
|
|
|
|
|
|
|
|
Contractual Obligations
|
|
Total
|
|
Less than 1 year
|
|
1-3 years
|
|
3-5 years
|
|
More than 5 years
|
|
Finance lease obligations
(1)
|
|
$
|
4,879
|
|
$
|
1,177
|
|
$
|
2,354
|
|
$
|
1,348
|
|
$
|
—
|
|
Operating lease obligations
(2)
|
|
12,142
|
|
2,626
|
|
4,432
|
|
3,388
|
|
1,696
|
|
Purchase obligations
(3)
|
|
11,851
|
|
11,851
|
|
—
|
|
—
|
|
—
|
|
Total contractual obligations
|
|
$
|
28,872
|
|
$
|
15,654
|
|
$
|
6,786
|
|
$
|
4,736
|
|
$
|
1,696
|
_______________
(1) Amounts represent our principal contractual commitments, including interest, outstanding under finance leases for certain tractors in our crude oil marketing segment.
(2) Amounts represent rental obligations under non-cancelable operating leases and terminal arrangements with terms in excess of one year.
(3) Amount represents commitments to purchase 42 new tractors and 73 new trailers in connection with our transportation business.
See Note 12 in the Notes to Unaudited Condensed Consolidated Financial Statements for further information regarding our finance and operating leases.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably expected to have a material current or future effect on our financial position, results of operations or cash flows.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, see Note 2 in the Notes to Unaudited Condensed Consolidated Financial Statements.
Related Party Transactions
For more information regarding related party transactions, see Note 8 in the Notes to Unaudited Condensed Consolidated Financial Statements.
Critical Accounting Policies and Use of Estimates
A discussion of our critical accounting policies and estimates is included in our 2018 Form 10-K. Certain of these accounting policies require the use of estimates. There have been no material changes to our accounting policies since the disclosures provided in our 2018 Form 10-K.
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
There have been no material changes to our “Quantitative and Qualitative Disclosures about Market Risk” that have occurred since the disclosures provided in our 2018 Form 10-K.
Item 4.
Disclosure Controls and Procedures
As of the end of the period covered by this quarterly report, our management carried out an evaluation, with the participation of our Executive Chairman and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 and 15d-15(e) of the Exchange Act. Based on this evaluation, as of the end of the period covered by this quarterly report, our Executive Chairman and our Chief Financial Officer concluded:
(i) that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive and financial officers, as appropriate to allow for timely decisions regarding required disclosures; and
(ii) that our disclosure controls and procedures are effective.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(e) under the Exchange Act) during the fiscal quarter ended March 31, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
From time to time as incidental to our operations, we may become involved in various lawsuits and/or disputes. Primarily as an operator of an extensive trucking fleet, we are a party to motor vehicle accidents, worker compensation claims and other items of general liability as would be typical for the industry. We are presently unaware of any claims against us that are either outside the scope of insurance coverage or that may exceed the level of insurance coverage and could potentially represent a material adverse effect on our financial position or results of operations.
Item 1A.
Risk Factors
In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in our 2018 Form 10-K and the risk factors and other cautionary statements contained in our other SEC filings, which could materially affect our businesses, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. There have been no material changes in our Risk Factors from those disclosed in Item 1A of our 2018 Annual Report on Form 10-K or our other SEC filings.
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.
Defaults Upon Senior Securities
None.
Item 4.
Mine Safety Disclosures
Not applicable.
Item 5.
Other Information
None.
Item 6.
Exhibits
|
|
|
|
|
|
|
|
Exhibit
|
|
|
Number
|
Exhibit
|
|
|
|
|
3.1
|
Certificate of Incorporation of Adams Resources & Energy, Inc., as amended (incorporated by reference to Exhibit 3(a) to Form 10-K for the fiscal year ended December 31, 1987).
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3.2
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10.1
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10.2*
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31.1*
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31.2*
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32.1*
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32.2*
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101.CAL*
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XBRL Calculation Linkbase Document
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101.DEF*
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XBRL Definition Linkbase Document
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101.INS*
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XBRL Instance Document — the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
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101.LAB*
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XBRL Labels Linkbase Document
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101.PRE*
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XBRL Presentation Linkbase Document
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101.SCH*
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XBRL Schema Document
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____________
+ Management contract or compensation plan or arrangement.
*Filed or furnished (in the case of Exhibit 32.1 and 32.2) with this report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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ADAMS RESOURCES & ENERGY, INC.
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(Registrant)
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Date: May 8, 2019
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By:
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/s/ Townes G. Pressler
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Townes G. Pressler
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Executive Chairman
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(Principal Executive Officer)
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By:
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/s/ Tracy E. Ohmart
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Tracy E. Ohmart
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Chief Financial Officer
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(Principal Financial Officer and Principal
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Accounting Officer)
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